Macro Outlook

Anatomy of a fraud: In the middle of November, Bryan and I recommended that WaveStrength Options Weekly readers buy puts against Pfizer Inc. (PFE: NYSE).

A few days later, the net was alive with talk that the pharmaceutical behemoth had no viable drugs in the pipeline and was firing a huge chunk of its sales staff. The stock started to wobble, but did not collapse. 

 

Last week, PFE's new CEO Jeff Kindler tried to spin the firings as a cost savings and raised guidance. His flunkies trotted out a whole song and dance as to how their next generation cholesterol drug Torcetrapib would save the company.

Finally, PFE announced Friday night that it was shutting down trials of Torcetrapib due to "an imbalance of mortality and cardiovascular events."

At this morning's open, floor traders in Chicago were having their own cardiovascular events, as the options that we recommended soared from 50 cents to $5.30 in five minutes flat (a gain, for those of you who track these things, of 960%).

The lesson here: despite all the smoke PFE was blowing, the chart showed the real story the entire time.

How can an option gain 960% from the close of trading on Friday to the open of trading on Monday? Well, if we're talking about the Pfizer Inc. (PFE:NYSE) January 27.5 Calls, all it takes is the world's largest drugmaker to halt development of its key new cholesterol treatment Torcetrapib.

This is devastating news to Pfizer shareholders, because Pfizer had poured $800 million into developing Torcetrapib - expecting it to fill the prescription void when cholesterol treatment Lipitor loses patent protection in 2010.

But now that development has been cancelled, PFE stock is down $4.00 and the PFE put options that I recommended in WaveStrength Options Weekly opened the day a whopping 960% higher than their closing price on Friday.

How's that for a morning pick-me-up!?

I'll be following up on this in Market Report tonight.

Material Profits

After nearing the $64 per barrel mark (inching closer to my target of $65 per barrel by the end of the year), crude oil has slipped back down below $63. 

OPEC's planned meeting on December 14 will discuss the possibility of another production cut, but there's been no consensus yet from the member states on whether that will definitely happen or not (nor by how much. if it were to happen).

Expect some member states to come out in favor of production cuts over the next ten days to help prop up oil prices. They've had a nice little run over the past two weeks, and I think OPEC's looking for more. 

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